Class Action Defense – Class Action Defense

December 8, 2023December 8, 2023 by Class Action Defense

The Class Action Weekly Wire – Episode 41: BIPA Health Care Exception Embraced By Illinois Supreme Court

Duane Morris Takeaway: This week’s episode of the Class Action Weekly Wire features Duane Morris partner Jerry Maatman and associate Tyler Zmick with their discussion of an Illinois Supreme Court ruling that is welcome news for BIPA defendants and companies operating in the health care space.

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Episode Transcript

Jerry Maatman: Thank you loyal blog readers and listeners, welcome to this week’s installment of the Class Action. Weekly Wire. Joining me today is my colleague, Tyler Zmick, here at Duane Morris.

Tyler Zmick: Thanks, Jerry. Great to be here.

Jerry: Today we’re discussing the most recent decision of the Illinois Supreme Court in Mosby v. Ingalls Memorial Hospital, a decision by the high court regarding exemptions under the BIPA statute – which is the source of so much class action litigation here in Illinois. Tyler, you’re one of the foremost thought leaders in this particular space – what’s your read on this particular decision?

Tyler: Sure, well I think it’s a significant and rare defendant-friendly ruling. And this exception at issue in the case could be potentially pretty broad and could be a basis for defendants to assert viable defenses in cases that are sort of less obviously involving or related to healthcare than this specific Mosby case.

But with respect to this case that went before the Illinois Supreme Court – the plaintiffs were nurses, and the hospitals they worked at required them to use a fingerprint-based medication dispensing system. So basically, the nurses had to scan their fingerprints to verify their identities, and the system would then give them access to controlled medicines which the nurses would then give to their patients. So, the plaintiffs sued the hospitals they worked for, in addition to the company that sold the medication dispensing device, and they alleged that all the defendants violated the BIPA by using the device to collect their biometric finger scan data without complying with the BIPA statute’s notice and consent requirements.

In the trial court, the defendants moved to dismiss, and they did so on the basis that the claims failed because plaintiff’s’ data was excluded from the scope of the BIPA. And specifically § 10 of the statute states that “biometric identifiers do not include information captured from a patient in the health care setting or information collected for healthcare treatment, payment, or operations under HIPAA.” And, as we all know, HIPAA is the federal health privacy statute that applies in many circumstances, and is often cross-referenced in state statutes. So defendants argued that the latter clause regarding HIPAA applied, and that plaintiffs’ fingerprints had been used so that the nurses could provide medicine to treatments, meaning the fingerprints were collected for healthcare treatment under HIPAA, but the trial court denied the motions to dismiss, which led to the appeal – first the Appellate Court, and then to the Illinois Supreme Court.

Jerry: I thought that the trial court’s disposition of the exemption, as well as the discussion by the Illinois Appellate Court regarding the either narrow or broadness of that particular exemption, was very interesting. I know, in handling these sorts of cases, plaintiffs always argue that exemptions to liability should be construed very narrowly. But it seems like in this particular case, the Illinois Supreme Court ruled in a very practical and straightforward way. With respect to the exemption, what did you find interesting between the trial court, Appellate Court, and Supreme Court’s treatment of the exemption?

Tyler: That’s a good question. I think primarily the Appellate Court’s reading of the healthcare exception in the BIPA statute was less based on the plain language of the statute, and as we know, the first rule of statutory interpretation is, go with the plain language of the statute, and read every word, so nothing is superfluous. And that is what the Illinois Supreme Court did here, and also interestingly, what one of the three appellate court justices did – specifically Appellate Court Justice Mikva thought that the exception should be applied more broadly in the way the Illinois Supreme Court did end up interpreting it.

Jerry: I went to law school with Justice Mikva, a good friend and very well respected in the bar. Did you think that the dissent in terms of its interpretation, somewhat carried the day and swayed the Illinois Supreme Court in terms of the result that we saw here from the high court?

Tyler: Yes, absolutely. I mean in pretty much every respect the Illinois Supreme Court agreed with Justice Mikva’s dissent. The high court unanimously held that as Justice Mikva opined that the BIPA’s exclusion for information collected for healthcare treatment, payment, or operations under HIPAA can apply to the biometric data of healthcare workers, and not only patients. And obviously here we have plaintiffs that were nurses and thus healthcare workers.

Going to the specific analysis that was adopted by the Supreme Court and Appellate Court’s justice, the high court determined that the relevant sentence of § 10 excludes from the definition of biometric identifier data that may be collected in 2 separate and distinct scenarios rather than overlapping scenarios. Specifically, biometric identifiers do not include (i) information captured from a patient in a healthcare setting or (ii) information collected, used, or stored for healthcare treatment, payment, or operations under HIPAA. And the Supreme Court again agreed with defendants that the two categories are different, because the information excluded under the first clause originates only from the patient, whereas information excluded under the second clause may originate really from any source. And regarding that second HIPAA clause, the Supreme Court observed that the Illinois Legislature borrowed the phrase ‘healthcare treatment, payment, and operations’ from the federal HIPAA regulations, and it’s important to note that the federal HIPAA regulations in turn provide relatively broad definitions for those terms. So it remains to be seen just how broad the BIPA’s healthcare exception will be when applied in other future BIPA cases.

Jerry: Well, it seems to me this is a gem of a ruling, and one that defendants – both in and outside of the healthcare industry – should put in their toolbox as an additional line of defense to oppose efforts to certify classes or for plaintiffs’ lawyers prosecuting BIPA cases. So thank you very much for your analysis, Tyler, and for being our guest on this week’s Class Action Weekly Wire.

Tyler: Absolutely. Thanks for having me, Jerry.

December 7, 2023December 8, 2023 by Class Action Defense

California State Court Grants Class Certification For Wage & Hour Claims Against Cannabis Dispensaries

By Seth A. Goldberg and Nick Baltaxe

Duane Morris Takeaways: A California Superior Court recently granted class certification relative to a class of hundreds of employees against a group of dispensary defendants where the Plaintiffs presented sufficient evidence that the off-the-clock work claims, meal and rest period claims, and reimbursement of necessary business expenses claims predominated over individual inquiries and were typical of the class. The Court did not rule on the merits of the integrated enterprise, alter ego, or joint employer arguments, nor did the Court agree with the Defendant’s arguments that the claims were not typical because the Plaintiffs were not employed by each Defendant. Nonetheless, the ruling is important for employers in general and cannabis dispensaries in particular.

Case Background and the Court’s Ruling

A group of dispensary and retail store employees at four different dispensaries owned by different entities asserted that they should be treated as a single enterprise. The Plaintiffs moved to certify a class of all current and former non-exempt, hourly employees of the Defendants from January 13, 2017 through the present. The Plaintiffs alleged that the putative class members were expected to work off-the-clock in order to set up their timekeeping program and their payroll program as well as review materials on the timekeeping program, before clocking-in on their personal cell phone. The Plaintiffs additionally contended that the Defendants failed to provide meal and rest periods, timely pay all wages on termination, or provide accurate itemized wage statements. The Plaintiffs also argued that because the four Defendants should be considered a single enterprise, they failed to comply with the higher minimum wage found in the City of Los Angeles Minimum Wage Ordinance.

The Court granted the Plaintiffs’ motion for class certification. The Court noted that the Plaintiffs’ arguments regarding the Defendants being an integrated enterprise could be established by common proof. At the class certification stage, the Court determined that the Defendants’ arguments went to the merits of the Plaintiffs’ claims and did not compel denial of the Plaintiffs’ motion. The Court found that each of the Plaintiffs’ class claims were subject to common proof, that the Plaintiffs’ injuries were typical of the class, and that the Plaintiffs and their counsel were adequate to serve as class representative and class counsel. Importantly, the Court reached this conclusion despite Defendants’ introduction of compliant policies and procedures relating to these wage & hour claims.

Key Takeaways

There are thousands of state-licensed cannabis operators in California, a state known for its ubiquitious wage & hour litigation, and thousands more across the 38 states in the US that have legalized cannabis for medical and/or adult-use purposes. As the cannabis industry continues to mature and evolve, wage & hour class actions are likely to become more frequent in the cannabis industry, just as they have grown in other industries. It is crucial that employers ensure that they follow federal and state wage & hour laws and provide their employees with complaint policies and procedures. Arbitration agreements with class waivers also should be provided to each employee in states where applicable. This becomes even more crucial in the cannabis space, where brands are expanding due to a high volume of M&A transactions and market consolidation. Cannabis companies should continue to be cognizant of the strict wage & hour regulations in their states as the industry continues to grow.

December 3, 2023 by Class Action Defense

Judge Recommends Scam Class Action Settlement Site Be Shut Down

By Gerald L. Maatman, Jr. and Christian J. Palacios

Duane Morris Takeaways: U.S. Magistrate Judge Joseph Marutollo’s recent report and recommendation – a novel order in the context of class action settlements – in the proceeding captioned In Re Payment Card Interchange Fee and Merchant Discount Antitrust Litigation, Case No. 1:05-MD-01720, Doc. No. 9009 (E.D.N.Y. Nov. 28, 2023), highlights the risks associated with class action claims websites and the potential for bad actors to create fraudulent web pages to mislead claimants. Corporate defendants should take care to monitor online activity following the creation of a court-authorized settlement website in order to protect any class-wide settlement and claimants against potential fraudsters. Indeed, in a world where scammers are becoming increasingly more sophisticated through the use of technology, class action settlement websites may be the next frontier in the battle against cybercrime.

Background

After 15 years of contentious litigation, Visa and MasterCard settled a putative class action for $5.6 billion to resolve allegations that the credit card companies violated federal and state antitrust laws resulting in over 12 million merchants allegedly paying excessive fees to Visa and MasterCard. As is typical in class actions of this size, a court-authorized settlement website was created to accept claim submissions and provide claimants with details regarding the settlement agreement.

On November 28, 2023, Magistrate Judge Marutollo recommended that the Court order the website “settlement2023.org” (and any affiliate website) be taken down, as the operators of the Settlement2023.org entity, who remain unknown, were attempting to deceive putative class members into using the site through various schemes, including using fake voicemails from rap artist Snoop Dogg to convince users of its validity. According to Magistrate Judge Marutollo’s report, although the scam website ceased operation on November 21, 2023, it was unclear if other webpages remained open under different domain names that were also operated by the Settlement2023.org entity.

The Magistrate Judge’s Recommendation And Report

In addition to recommending the Court issue an order to take down of any and all remaining webpages that attempt to mimic the court-authorized settlement website, Magistrate Judge Marutollo also recommended that the owners and operators of the Settlement2023.org entity be required to identify themselves, and provide a list of all class members that signed up for its services, as well as give notice to would-be customers that any contract they entered into with the entity was now void. Finally, the Magistrate Judge requested that the Court be notified of any newly-detected websites and recommended that the court-authorized website be updated to alert those who may have been deceived by the settlement2023.org website.

Implications

Cybercriminals continue to capitalize on advances in technology to launch misinformation campaigns, and large class action settlements are in the cross-hairs of this emerging threat. Therefore, it is imperative that plaintiff and defendant-side representatives alike remain vigilant to protect class members from deception and safeguard the integrity of the class action settlement process.

December 1, 2023 by Class Action Defense

The Class Action Weekly Wire – Episode 40: Global Developments In Artificial Intelligence Regulations

U.S. And U.K. Cybersecurity Agencies Announce International Agreement Addressing AI Safety

Duane Morris Takeaway: This week’s episode of the Class Action Weekly Wire features Duane Morris partner Jerry Maatman and special counsel Brandon Spurlock with their discussion of the latest developments on the regulatory front of artificial intelligence.

Episode Transcript

Jerry Maatman: Hello, loyal blog readers! Welcome to the Class Action Weekly Wire. Today our guest is my colleague, Brandon Spurlock.

Brandon Spurlock: Hey Jerry, it’s great to be here. Thanks.

Jerry: Today, we’re talking about the most recent developments on a global basis for regulatory endeavors insofar as artificial intelligence is concerned. I know that, Brandon, you’re a thought leader in that space, so wanted to get your feedback on what corporations should know about the global move towards regulation of artificial intelligence.

Brandon: Absolutely, Jerry. Well, this agreement was unveiled to the public just this past weekend – November 26 to be exact. It’s titled “Guidelines for Secure AI System Development.” This initiative was led by the U.K.’s National Cyber Security Centre, and it was developed in conjunction with the U.S.’ Cybersecurity and Infrastructure Security Agency. These guidelines focus on how to keep artificial intelligence safe from rogue actors. The U.S., Britain, Germany, are among 18 countries that signed on to the new guidelines laid out in this 20-page document. Now, this is a non-binding agreement that lays out general recommendations, such as monitoring AI systems for abuse, elevating data protection and vetting software suppliers. One thing to note is that the framework does not address the challenging questions around data sources for AI models or appropriate use of AI tools.

Jerry: Well it certainly seems to be a milestone on the road to regulation of AI from a comparative standpoint. Where is the United States when it comes to regulation of artificial intelligence, as compared to other countries or major jurisdictions?

Brandon: Really good question, Jerry. Many countries are putting their resources together, as well as independently positioning themselves to demonstrate leadership when it comes to embracing AI – while also cautioning its security, privacy, and market risk. So countries like France, Germany, Italy – they recently reached an agreement on how artificial intelligence regulations should be structured around “mandatory self-regulation through codes of conduct.” So what does this mean? It’s focused on how these AI systems are designed to produce a broad range of outputs. The European Commission, the European Parliament, and the EU Council are negotiating how the bloc should position itself on this particular topic.

Even last month, when we examined President Biden’s executive order on artificial intelligence, that publication from the White House further provides businesses with the in-depth roadmap of how the U.S. federal government’s regulatory goals regarding AI are developing.

Jerry: The evolution of artificial intelligence is certainly uppermost in the mind of most corporate counsel, and its impact on litigation – and in particular, the class action world – is real and palpable and with us. So thank you for your thoughts and analysis, Brandon, and we’ll see you next week on the Class Action Weekly Wire.

Brandon: Thanks, Jerry.

November 17, 2023 by Class Action Defense

The Class Action Weekly Wire – Episode 39: PAGA Faces Potential Transformation In California Supreme Court Decision

Duane Morris Takeaway: This week’s episode of the Class Action Weekly Wire features Duane Morris partner Jerry Maatman and special counsel Eden Anderson with their discussion of a PAGA case currently before the California Supreme Court weighing whether trial courts have inherent authority to ensure that PAGA claims will be manageable at trial, and to strike or narrow such claims if they cannot be managed appropriately.

Episode Transcript

Jerry Maatman: Thank you for being here, loyal blog readers, in our next installment of the Class Action Weekly wire. I’m very excited to join my colleague, Eden Anderson, who is on the show today to talk about new California developments.

Eden Anderson: Thanks, Jerry. I’m very happy to be here.

Jerry: Great. A significant decision in the PAGA area was argued this past month in the California Supreme Court. And I know you’re following all things PAGA and all things arbitration on behalf of employers, and are very much in the forefront of thought leadership in this area. Could you tell our audience a bit about the case and what it means?

Eden: Yes, the Estrada, et al v. Royalty Carpet Mills case. There the plaintiff Jorge Estrada filed a putative class and PAGA action against his former employer asserting meal period violations under California law. The employer manufactured carpets and had employees working at a number of different locations and a number of different positions. The court initially certified two classes of workers from two different production facilities – 157 employees in total – and the claims were tried to the bench. The judge ultimately to decertified one of the two classes. The judge found there were too many individualized issues to support class treatment for that group, and as to the PAGA claim for that group, the judge deemed it not manageable, and dismissed it. Mr. Estrada appealed, and he argued that PAGA claims have no manageability requirement, and the Court of Appeal agreed with him; it reasoned that class action requirements don’t apply to PAGA actions, and therefore the manageability requirement that is rooted in class action procedure does not apply. And at the same time the Court of Appeal acknowledged that the difficulty that employers face, and trial courts as well with PAGA claims involving hundreds or thousands of employees, but it concluded that dismissal for lack of manageability just isn’t a tool that trial courts can utilize.

Jerry: I know there are a range of approaches that trial courts and appellate courts have undertaken when it comes to managing or adjudicating a PAGA action. Is there a split in authority that the California Supreme Court is going to be debating and looking at in terms of its ultimate ruling?

Eden: Yes, that’s correct. The holding in Estrada is contrary to the holding in Wesson v. Staples, where the trial court struck a PAGA claim as unmanageable, and the Court of Appeal affirmed. The claims at issue in Wesson involved the alleged misclassification of 345 store managers. The employer’s exemption affirmative defense turned on individualized issues as to each manager’s performance of exempt versus non-exempt tasks, which varied based on a number of factors including store size, sales volume, staffing levels, labor budgets, store hours, customer traffic, all of which varied across the stores. The split in authority prompted the California Supreme Court to grant review in Estrada, but not Wesson. The Court of Appeal there determined that they had properly been dismissed for lack of manageability.

Jerry: I know the case was argued on November 8, and the stakes are quite high. It’s a vexing area for employers. It’s a challenging area for judges and lawyers. What were your takeaways from the oral argument, and what employers ought to know about the issues that were argued over that day before the California Supreme Court?

Eden: Overall, it was an uplifting oral argument for employers, which, as you know, can be a little bit unusual out here. On the downside, several justices, including justices Liu and Jenkins, express some skepticism about whether a trial court’s inherent powers allow it to outright strike or dismiss an entire PAGA action for lack of manageability. Justice Liu commented that permitting trial courts such wide-ranging power could shortchange the PAGA statute, unless there’s an overriding constitutional interest. On that point several justices acknowledged that an employer has a due process right to present evidence to support its affirmative defenses, and that in certain cases that evidence might require a series of mini trials over a period of years and wholly consume a trial court’s resources. Justice Kruger asked questions of Estrada’s counsel about the impracticability of requiring trial courts to consume years of time and resources in that manner. Justice Groban also expressed concern about a PAGA case, for example, where you have multiple labor code violations alleged, hundreds or even thousands of employees at issue, different work sites, different types of employees ranging from janitors to accountants, and he asked why, in such a case a trial court could not just limit the case to the accountants only, and other justices raised similar concerns. Chief Justice Guerrero asked Estrada’s counsel why the answer shouldn’t just be that trial courts have this broad discretion and that it’s just something that’s going to be subject to appellate review.

Jerry: It’s often said that California is the toughest venue in the United States to be an employer and litigate cases in courtrooms there. I suspect the answer is a little more nuanced, since every case is different. But given your expertise in this area and your thought leadership, do you have any prognostications for employers as to the outcome of the Estrada case and the California Supreme Court?

Eden: Yeah, given the constellation of comments from the justices, the court may hold that trial courts have an inherent authority to protect an employer’s due process rights, and that such power necessarily encompasses the right to gauge the manageability of PAGA claims, and to narrow them down as to whether that authority includes outright dismissal of an entire PAGA case. Employers are going to have to wait and see – a decision has to issue within 90 days, so we will soon know the answer.

Jerry: Well, in following the dockets of filings in all the states as we do, I think the number one case being filed these days by the plaintiffs’ bar are PAGA representative actions. So this particular decision certainly has the potential to be a game changer in the landscape of legal liability, especially in California. Well, thank you so much, Eden, and thank you to our loyal blog listeners for another edition and participation in our Class Action Weekly Wire.

Eden: Thank you for having me, Jerry, and thank you listeners.

November 14, 2023 by Class Action Defense

New York Federal Court Denies Class Certification Due To Rule 23(a)(4) Adequacy Requirement Based On Employer’s Strong Defense To Plaintiff’s Individual Claims

By Gerald L. Maatman, Jr., Katelynn Gray, and Gregory S. Slotnick

Duane Morris Takeaways: Lack of adequacy of the named plaintiff in a class action can result in the denial of Rule 23 class certification in appropriate circumstances. In Cheng, et al. v. HSBC Bank USA, N.A., No. 20-CV-01551, 2023 U.S. Dist. LEXIS 161453 (E.D.N.Y. Sept. 12, 2023), the plaintiff filed a class action against the defendant alleging breach of contract and violation of § 349 of the New York General Business Law. The plaintiff filed a motion for class certification pursuant to Rule 23, and the court denied the motion on the basis of the bank’s strong defense to the plaintiff’s individual claims, which was was likely to impede the claims of other class members – even though the class members were not subject to the same defense. Employers in New York defending Rule 23 class actions should carefully consider the court’s reasoning and finding that plaintiff was an inadequate representative of his sought-after class. As shown in Cheng, potential defenses to a named plaintiff’s individual claims may be sufficient to defeat class certification.

Case Background

In Cheng, the plaintiff asserted that defendant HSBC Bank USA, N.A. (“HSBC” or “the bank”) failed to apply interest to plaintiff’s bank savings account deposits in a timely manner. After the plaintiff made a deposit with the bank on May 31, 2019, he alleged HSBC did not apply any interest on the account until June 4, 2019, four days after the deposit. Plaintiff claimed the bank also delayed applying interest on another deposit made on November 26, 2019 until November 29, 2019. In November and December 2019, the plaintiff made phone calls to HSBC to address the alleged delays in crediting interest to his deposits. Id. at *2. The bank responded that its policy was to not credit interest on account deposits until 3 to 5 business days after they were made. In the 2019 phone calls, the plaintiff indicated that he understood interest could not accrue until the bank had his “money on hand,” and that his concern was that the bank was failing to post the funds and initiate interest accrual upon receipt of those funds, despite the fact that it already had the “money on hand.” Id. at *3. In one of the 2019 phone calls, when a bank representative explained that plaintiff should have received an email indicating his deposit needed to pass through a clearing process before HSBC could post it to his account (and presumably, begin interest accrual), plaintiff responded, “I don’t care about the email…I look at when is my money withdraw[n] from other bank, when is the money posted to my HSBC account, okay? Don’t tell me HSBC takes five days to post the money after you receive it.” Id. at *4.

In plaintiff’s lawsuit, brought on behalf of himself and a prospective class of customers, plaintiff claimed HSBC was obligated to credit interest to his account on the day he initiated the deposit or transfer, rather than when the bank actually received the money. Plaintiff contended the class consisted of at least 100 members and the amount in controversy exceeded $5 million. Id. at *5. At his deposition, plaintiff attempted to contextualize the 2019 phone calls, but admitted that he had read HSBC’s Terms and Charges Disclosures (“Disclosures”) when opening his account. The Disclosures stated that “[i]nterest begins to accrue on the Business Day you deposit noncash items.” Noncash items are instruments like checks and wire transfers. Id. at *1-2.

Although the court previously had denied the bank’s motion for summary judgment on the claims by drawing all reasonable inferences in plaintiff’s favor, it expressed in that decision its view that the 2019 phone calls “strongly suggested” plaintiff shared HSBC’s understanding that the “you deposit” language in the Disclosures meant interest would begin to accrue once HSBC had cleared funds on hand, not when he initiated the deposit. Id. at *6. The court also opined that in the calls, plaintiff appeared to recognize HSBC could not apply interest until it was in receipt of his funds, and plaintiff told the bank multiple times that if the delay in accruing interest was due to a delay in receiving the funds, “that’s perfect” and “that’s fine.” Id.

The Court’s Opinion Denying Class Certification

In its decision denying class certification under Rule 23, the court set forth Rule 23’s threshold requirements for class certification – numerosity, commonality, typicality, and adequacy – and confirmed plaintiff bears the burden of establishing each element. Id. at *8. The court pointed specifically to the adequacy requirement of Rule 23(a)(4), which focuses on the fitness of purported class representative to competently litigate the case on behalf of absent class members, and reiterated that the interests of the named plaintiff cannot be antagonistic to those of the rest of the class. Id.

The court found that plaintiff faced “serious obstacles to recovery on his individual claims,” and that plaintiff’s statements made in the 2019 phone calls were compelling evidence he understood that he would not begin accruing interest until the bank had his cash on hand. Id. at *10. The court reasoned that in his class certification motion, plaintiff now alleged that the bank misled him to believe that interest would begin accruing as soon as he initiated a deposit, which was contradicted by the statements made by plaintiff in the 2019 phone calls. The court determined that the 2019 phone calls, plaintiff’s conflicting allegations about whether he read the Disclosures, and his prior relevant litigation and banking history were all likely to weaken his claims, and that there was a strong argument that plaintiff “knew precisely what he was doing and that he and HSBC shared the same understanding about what the key term ‘you deposit’ meant.” Id. at *11.

As a result, the court determined that the plaintiff could not be an adequate representative of the class he sought to represent because he acknowledged in the 2019 phone calls that he understood the key terms of the bank’s policies. The court opined there was a strong argument that the plaintiff understood the defendant’s terms, but was attempting to represent a class based on the bank’s alleged misconduct. Id. at *10-11. The court ruled that it was “not comfortable” making plaintiff the representative of all other class members’ claims and allowing him to bind hundreds of absent class members to plaintiff’s story, conditioning their recovery on how well plaintiff’s story held up. Id. at *12. For these reasons, the court denied plaintiff’s motion for class certification under Rule 23(a)(4).

Implications For Employers

The court’s decision denying class certification based on its finding that plaintiff failed to meet Rule 23’s adequacy threshold requirement is a potentially helpful roadmap for employers facing class action claims. The court’s analysis centered on an individualized determination of plaintiff’s particular factual background in ultimately holding it was uncomfortable the plaintiff could adequately represent hundreds of absent class members based on his own contradictory and inconsistent testimony and evidence. Businesses defending class actions should consider each named plaintiff’s individual circumstances and factual background for issues that could preclude their ability to adequately represent class members. The decision confirms that in the appropriate circumstances, courts will not hesitate to deny class certification to named plaintiffs on such grounds.

November 10, 2023 by Class Action Defense

The Class Action Weekly Wire – Episode 38: White House Speaks Out On Artificial Intelligence: Development, Enforcement, And Innovation

Executive Order Targets Safety & Security, Consumer Privacy, And Algorithmic Discrimination

Duane Morris Takeaway: This week’s episode of the Class Action Weekly Wire features Duane Morris partners Jerry Maatman and Alex Karasik and associate George Schaller with their discussion of the landmark Executive Order published by the White House last week regarding artificial intelligence. The EO provides a good roadmap for employers of the federal government’s regulatory goals as artificial intelligence begins to take firm root throughout all sectors of the American economy.

Episode Transcript

Jerry Maatman: Hello loyal blog readers, welcome to this week’s installment of our Class Action Weekly Wire series. I’m joined today by my colleagues Alex Karasik and George Schaller for an interesting discussion on artificial intelligence. Welcome Alex and George.

Alex Karasik: Thank you Jerry, always a pleasure.

George Schaller: Great to be here, Jerry.

Jerry: Today we’re talking about an important issue that has been in the news over the last week, and that is the White House initiative on artificial intelligence. Alex, can you give provide some overviews of what employers and corporations need to know about this particular event?

Alex: Absolutely, Jerry – like many federal, state, and local regulatory bodies, the White House is also paying attention to AI in terms of what its impact might be on a broad range on constituents. The Executive Order endeavors to cover eight key areas: consumer protection, workers’ protection, safety and security, privacy, innovation and competition, global leadership, and the government’s own use of AI. And in setting the tone on the regulatory front, this marks the White House’s commitment to these areas. The broad range means that essentially every sector of the American business economy could be potentially underneath the umbrella of AI and impacted by this new development.

Jerry: I found it fascinating that the White House and President Biden would focus on and get involved in potential regulation and policy statements in artificial intelligence. George, what does the Executive Order say and contemplate with respect to issues involving safety and security?

George: That’s a great question, Jerry. The EO directs the creation of new safety and security standards in requiring safety testing and reporting, standard safety tests, biological synthesis screening, determining best practices for detecting AI-generated content, establishing a cybersecurity program, and ordering the development of a national security memorandum. There are many AI-enabled problems like “deep fakes” and disinformation campaigns, and these are key targets in this area. Right now the processes and technologies for labeling the origins of text, audio, and visual content is further behind than the advancement of AI tools – a reliable way to identify machine-generated content does not yet exist.

On the privacy viewpoint, the EO includes evaluating how government agencies collect and use commercially available information, as well as enhancing privacy guidance for federal agencies.

Jerry: The phone calls I’ve gotten over the last ten days from general counsel of companies with whom we work focused on their responsibilities, obligations, and duties as employers. Alex, in pivoting to anti-discrimination issues and how artificial intelligence may impact workplace litigation issues – are there particular topics, areas, and issues that employers should focus on in the wake of the Executive Order?

Alex: Thank you, Jerry, that’s a great question. If we had to boil this down to three topics that are most impacted by the Executive Order in terms of anti-discrimination laws, it would be equity, workers’ protection, and civil rights. And what’s the common thread that ties all these topics together? Algorithmic fairness and algorithmic discrimination is a common theme. For example, the EO mentions making sure that federal contractor programs are being monitored for not having any type of discriminatory impact on those that are being hired. We’ve also seen something similar in New York City, where in July of 2023, there was an algorithmic fairness law that came out about the use of artificial intelligence in hiring processes. And we anticipate that the Executive Order is starting the conversation on the federal level. Whether or not and how the Executive Order will be enforced remains to be seen, but nonetheless I think this signifies that the federal government is aware what state and local governments are doing around the country and they’re now starting that conversation from a broader, bigger level.

George: Additionally, the EO highlights the importance of responsible and effective government use of AI by issuing guidance, acquiring products, and hiring professionals for government agencies. The EEOC has artificial intelligence in its strategic sights as well – both on the enforcement level and as an agency resource. It will be important to watch how different government agencies will be involved with carrying out the eight priorities set forth in the EO and considering the short timelines outlined, and further down the road, seeing what the extent of the enforcement strategy will be.

Alex: The Executive Order also aims to identify the benefits of AI and see how this technology could be used for good purposes. In addition, the Executive Order calls for monitoring of the labor markets to see what is the actual impact of this technology in terms of how it’s being used – is it having a good impact, are there potential harms that are arising from its use? Essentially, the Executive Order wants more data to make the most informed decisions.

Jerry: It struck me that this 100-page Executive Order is, in essence, the first ten feet in a race that is probably as long as a marathon, and this is that starting salvo in terms of the government getting involved in AI regulation. More importantly, the plaintiffs’ bar is nothing if not innovative, and certainly the use of artificial intelligence, applications of it, and challenges to its use are going to be things that I believe are going to find their way into privacy-related class action litigation and employment-related class action litigation, at least at the start.

George and Alex, thank you for your comments and thought leadership in this area, and loyal blog readers, we’ll see you next week on our future installment of the Class Action Weekly Wire.

November 7, 2023 by Class Action Defense

Athletes Secure Class Certification On Monetary Relief Claims In NIL Battle In California Federal Court With The NCAA And Power 5 Conferences

By Gerald L. Maatman, Jr. and Sean P. McConnell

Duane Morris Takeaways: On November 3, 2023, Judge Claudia Wilken of the U.S. District Court for the District of Northern California granted a motion by Plaintiffs – a group of former, current and future student athletes – for certification of three proposed damages classes under Rule 23(b)(3) in the litigation entitled In Re College Athlete NIL Litigation, No. 4:20-CV-03919 (N.D. Cal. Nov. 3, 2023). Judge Wilken certified three classes seeking to recover compensation for the commercial use of their names, images, and likenesses (“NIL”). This class certification order follows a September 22, 2023 order in the same case certifying a proposed injunctive relief class under Rule 23(b)(2). While defendants did not dispute certification of the proposed injunctive relief class, they argued that the damages classes should not have been certified because the NIL market is inherently too distinct for the thousands of impacted student-athletes to claim the same kind of harm from lost compensation. In certifying the three proposed damages classes, the order sets the stage for a possible class-wide trial for hundreds of millions or even billions in back pay for student athletes.

Case Background

Plaintiffs are student athletes who either have competed or will compete on a Division I team since June 15, 2020. Defendants are the National Collegiate Athletic Association (“NCAA”) and the “Power Five” Conferences – the Pac-12 Conference, Big Ten Conference, Big 12 Conference, Southeastern Conference, and Athletic Coast Conference. Plaintiffs allege that Defendants set and enforced a set of rules to restrict the compensation that student-athletes can receive in exchange for the commercial use of student-athletes’ NIL and prohibit NCAA member conferences and schools form sharing with student athletes the revenue they receive from third parties for the commercial use of student-athletes’ NIL. Even though Defendants had suspended enforcement of some of these rules, they have not suspended enforcement of rules that prohibit NIL compensation contingent upon athletic participation or performances or enrollment at a particular school, including, most notably, compensation for lucrative broadcast deals that pay conferences hundreds of millions of dollars. Plaintiffs’ complaint includes claims for Sherman Act Section 1 violations for conspiracy to fix prices and group boycott or refusal to deal as well as a claim for unjust enrichment.

Plaintiffs moved for class certification of their claims under § 1 of the Sherman Act only.

The Court’s Certification Order

The decision at issue deals only with Plaintiffs’ motion for certification of three proposed damages classes under Rule 23(b)(3). The proposed classes are (i) current and former Division I men’s basketball players and FBS football players; (ii) current and former Division I women’s basketball players; and (iii) current and former Division 1 athletes that did not play Division I basketball or FBS football. Plaintiffs’ alleged damages fall into three different buckets, including: (1) broadcast TV NIL damages, which arise out of student-athletes having been deprived of compensation they would have received from conferences for use of their NIL in broadcasts of FBS football or Division I basketball games in the absence of the challenged restrictions; (2) video game damages, which arise out of student-athletes having been deprived of compensation they would have received from video game publishers for use of their NIL; and (3) third-party NIL damages suffered between 2016 and July 1, 2021 when the NCAA started to allow some NIL compensation for student athletes.

Defendants argued that the predominance requirement of Rule 23(b)(3) was not met because common proof cannot establish antitrust damages on a class-wide basis due to intra-class conflicts that exist among class members in each class as a result of Plaintiffs’ methodology for calculating damages. The Court disagreed. Relying largely on the opinions of Plaintiffs’ experts, the Court concluded that every class member suffered injury as a result of the NCAA’s rules, and that every class member will be entitled to receive a piece of the damages pie.

Implications For Organizations

The Court’s ruling is important to the ongoing debate over student athletes’ compensation. Thus far, NCAA-member schools cannot directly compensate their athletes for NIL. By certifying the damages classes proposed by Plaintiffs, the Court’s decision is likely to advance the ball on this issue.

November 3, 2023 by Class Action Defense

The Class Action Weekly Wire – Episode 37: Delivery Drivers’ Misclassification Suit Stayed Pending SCOTUS Arbitration Ruling

Duane Morris Takeaway: This week’s episode of the Class Action Weekly Wire features Duane Morris partner Jennifer Riley and associate Nathan Norimoto with their discussion of recent developments in a Massachusetts wage & hour suit brought by delivery drivers alleging independent contractor misclassification.

Episode Transcript

Jennifer Riley: Hello, podcast listeners, welcome to this week’s installment of the Class Action Weekly Wire. I’m Jennifer Riley, partner at Duane Morris, and joining me today is Nathan Norimoto, associate in our San Francisco office. Welcome, Nathan.

Nathan Norimoto: Thanks, Jen. It’s great to be here.

Jen: So today we’re discussing one of the top areas of focus by the plaintiffs’ class action bar – wage & hour litigation – and in particular, we’re going to talk about a misclassification case out of Massachusetts involving the arbitration defense. Nathan, can you start by giving our listeners some background on the case?

Nathan: Absolutely. So, misclassification is a popular theory alleged in wage & hour lawsuits often alleging exempt versus non-exempt or independent contractor versus employee claims. This particular case involves independent contractor misclassification claims brought under the Massachusetts Wage Act and the Massachusetts Minimum Fair Wage Law. The case at issue is Canales, et al. v. Flowers Foods, Inc., et al., currently pending in the U.S. District Court for the District of Massachusetts.

Delivery drivers had filed suit in 2021, alleging that Flowers Foods and its subsidiaries, LePage Bakeries and CK Sales Co., misclassified them as independent contractors, and sought wages and overtime pay. After the district court denied the defendants’ attempts to make the workers arbitrate under the Federal Arbitration Act, or FAA, the companies appealed to the First Circuit, and the appeals court back to the district court’s judgment – finding that precedent from the First Circuit and the Supreme Court lays out the exemption from arbitration under the FAA. Just last month, after the First Circuit issued its decision, the defendants filed a motion to dismiss or compel arbitration under the Massachusetts Uniform Arbitration Act.

Jen: Thanks for that background, Nathan. What was the result of the Court’s latest ruling?

Nathan: So earlier this week, U.S. District Judge Allison D. Burroughs denied the defendants’ motion to dismiss or compel arbitration under the Massachusetts Uniform Arbitration Act. The judge had found that defendants delayed in filing a motion to compel arbitration, which was inconsistent with the purpose of arbitration, citing a Massachusetts district court decision called Oliveira v. New Prime, Inc.

However, in that same decision, Judge Burroughs did separately grant the companies’ request to stay the case while the United States Supreme Court weighs a decision in Bissonnette v. LePage Bakeries. In that Supreme Court case, the Second Circuit had argued that the delivery drivers were not exempt from arbitration under the FAA because they are employees in the bakery industry. Under Section 1 of the FAA, there’s an arbitration exemption for “contracts of employment of seamen, railroad employees, or any other class of workers engaged in foreign or interstate commerce.”

Jen: Thanks so much, Nathan, for that rundown on this ongoing litigation and thank you listeners for joining us on the podcast today. We’ll be sure to keep you up-to-date on developments on the arbitration defense, the transportation worker exemption, and other issues. That wraps up another episode of the Class Action Weekly Wire.

Nathan: Thanks for having me, Jen, and have a great day everyone.

October 30, 2023 by Class Action Defense

Eleventh Circuit Affirms Blue Cross Blue Shield Insurers’ $2.67 Billion Class Action Settlement

By Gerald L. Maatman, Jr. and Sean P. McConnell

Duane Morris Takeaways: On October 25, 2023, in the litigation of In Re Blue Cross Blue Shield Antitrust Litigation, MDL No. 2406 (11th Cir. Oct. 25, 2023), a three-judge panel of the U.S. Court of Appeals for the Eleventh Circuit affirmed a district court’s order giving approval to the Blue Cross Blue Shield insurers’ $2.67 billion class action settlement resolving allegations of antitrust violations and other anti-competitive practices. The settlement, which was reached nearly three years ago, involved Blue Cross Blue Shield agreeing to a multi-billion dollar settlement fund and incorporating various reforms to resolve alleged anti-competitive business practices to harm competition. The Eleventh Circuit rejected various objections from corporate and individual objectors, including arguments that the settlement release would frustrate national employers from participating in the settlement and/or from making similar claims in the future, that the district court failed to scrutinize the allocation of the settlement proceeds among plaintiffs, and issues with the attorneys’ fees awarded. Instead, the Eleventh Circuit found that the district court did not abuse its discretion in approving the settlement.

The affirmation of the district court’s settlement approval in Blue Cross Blue Shield Antitrust Litigation is required reading for any corporate counsel considering settlement of antitrust class action litigation.

Case Background

The underlying multidistrict litigation began in 2012 when subscribers alleged that Blue Cross Blue Shield and member plans engaged in an anti-competitive market allocation and exclusive-dealing scheme to harm competition. The Blue Cross Blue Shield Association is a national insurance company. It owns and licenses its federal trademarks to local member plans and affiliated entities. According to the underlying complaint, subscribers who bought health insurance from Blue Cross Blue Shield alleged that Blue Cross Blue Shield allocated geographic territories, limited member plans’ competition by mandating a minimum percentage of business under the Blue Cross brand for each member doing business inside and outside their territories, restricted the right of member plans to be sold to companies outside the Association, and agreed to other ancillary restraints on competition. There was a separate track of litigation for claims brought by providers, but the case at bar does not involve that track. After the district court granted partial summary judgment for the subscribers in 2018, the parties reached a class action settlement that divided the subscriber-track plaintiffs into two groups: (i) a monetary damages class and (ii) an injunctive relief class.

Settlement Affirmed

Several parties appealed the district court’s approval of the class action settlement. Home Depot argued that the settlement release would, among other things, frustrate enforcement of the federal antitrust laws. The Eleventh Circuit rejected this argument because “[p]rivate enforcement is only one mechanism by which federal antitrust laws may be vindicated.” Id. at 13. The Eleventh Circuit noted that the “government may also enforce the antitrust laws against companies like Blue Cross” and intimated that DOJ or state attorneys general could investigate and bring claims against Blue Cross for anticompetitive conduct. Id. at 13-15. With respect to argument about the apportionment of settlement funds, the Eleventh Circuit opined that federal laws requires “equity, not equality.” Id. at 25. It therefore concluded that the approval of the class-wide settlement, though facially unequal, was not unfair and not an abuse of discretion.

Implications for Defendants in Class Actions

In Re Blue Cross Blue Shield Antitrust Litigation is one of the most significant antitrust class actions in recent years, and is arguably a historic resolution in terms of industry practices. From the early stages of the action, a court-appointed settlement master helped the parties in settlement negotiations, and the Eleventh Circuit referred to the settlement master’s view that the settlement at issue was reasonable.